The
Economist magazine recently published
their lighthearted look at world currencies
with the 2008 Big Mac Index. World currencies
are measured against the cost of a single
Big Mac from McDonald's fast food restaurants
in each country. Ideally there would be
a wide range of products used to measure
the value of a currency, but that wouldn't
be nearly as interesting as using just
a Big Mac.

They look at currencies and how fairly
valued they are compared to the currency
of other countries. The theory of purchasing-power
parity (PPP) states that a box of goods
should cost similar amounts in different
countries because of exchange rates. Purchasing
power parity measures the purchasing power
of world currencies, using a base currency
to measure the price of a product in different
countries.

So the Economist magazine has McDonald-ized
PPP by using a single Big Mac to measure
the value of currencies around the world.
The annual hamburger event that started
back in 1986 by the Economist has been
labeled "burgernomics" by some.
It is meant to be humorous, but there
can also be a lot of truth in humor.

According to the Economist's study, the
Euro is overvalued by 50% while the Chinese
Yuan is undervalued by 49%. Generally
the currencies of Asia are cheap, while
those of Europe are expensive. A Big Mac
that costs $3.57 in the United States
will cost $5.34 in the Euro area, $4.57
in Britain, $6.37 in Sweden, and a whopping
$7.88 in Norway. That same $3.57 Big Mac
will cost just $1.83 in China, $2.62 in
Japan, $2.04 in Indonesia, and as little
as $1.70 in Malaysia.

The humble McDonald's hamburger can be
bought in roughly 120 countries throughout
the world, so it is a product that is
widely available. Cultural differences
and countries at different stages of development
are just two factors that make the Big
Mac Index an unfair measure, but the annual
look at exchange rates was never meant
to be taken too seriously.